Exam 2: Thinking Like an Economist

Figure 2-11 -Refer to Figure 2-11.Points A,B,and D represent feasible or attainable outcomes for society.

What does Human Resources Canada do?

What are the two basic reasons why economists often appear to give conflicting advice to policymakers?

Figure 2-10 -Refer to Figure 2-10.What is the movement from point A to point B?

What does the x-coordinate give?

Which statement best describes the way economists study the economy?

What happens when economists test theories?

What is a common thread between economics and other sciences,such as physics?

This exercise will show you how different theories (models)can lead to very different courses of action.Suppose we ask the following question: Does income inequality promote economic growth and society's overall prosperity? Suppose two economists come up with the following theories (models): Economist A believes that wealth accumulation in just a few hands increases savings because consumption is necessarily limited.Higher savings,in turn,allow investing in new production facilities that increase the country's overall income and everybody is better off.So,Economist A advocates a non-equalitarian society. Economist B thinks that a very unequal distribution of wealth will increase capacities of production beyond the purchasing power of an essentially poor mass of consumers.For a while,consumers will increase their consumption,and prosperity,by borrowing from the rich,but eventually they will not be able to repay their debts and the economy will collapse for lack of demand.At that point,investing in new production facilities becomes unnecessary.In conclusion,Economist B thinks that extreme income inequality is counterproductive. a.What are the policy implications of the two theories? (In other words,does it matter which theory is correct?) b.How would a scientist determine which theory is correct? c.Under what conditions would each of the two models be correct? Could one use both models under different circumstances?

What are the four sectors in a more complex circular-flow diagram?

What does a normative statement describe?

What is a type of graph that can be used to display the relationship between two variables?

Figure 2-4 -Refer to Figure 2-4.Suppose the economy is at point A.What is the opportunity cost of increasing the production of toothbrushes by 20 units?

What are economists who try to improve the world considered?

What might a microeconomist NOT study?

Figure 2-3 -Refer to Figure 2-3.At which point or points can the economy NOT produce?

What do economists at Foreign Affairs Canada and International Trade Canada do?

According to a simple circular-flow diagram,how many markets do households and firms interact in?

What is the production possibilities frontier?

What is a circular-flow diagram?